In the recent release of its underwriting platform called Desktop Underwriting (DU in short), Fannie Mae has made several changes to Conforming loans guidelines. Let’s look at the highlights:
No more 40 Year and Interest Only Loans – Fannie Mae has retired loans with amortization terms greater than 360 months, which means no more 40 year loans. Also discontinued are the Interest Only loans. Both these loan programs were considered risky based on their portfolio analysis. Fannie Mae wants to encourage payment of both principal and interest and keep the maximum loan term to 30 years.
New Process for Foreclosure, Deed-in-Lieu of Foreclosure and Short-Sale- This is a big one. Earlier DU will outright decline a loan if the credit bureaus reported a foreclosure or a pre-foreclosure in last 7 years. In most cases, these were being reported in error and the borrowers had the proof that it was actually a short-sale or a deed-in-lieu. Unless the lenders offered a manual underwrite (which most didn’t) borrowers were declined a loan when per guidelines they could have qualified for one. With the new changes, DU will pass on the authority to the underwriters to decide whether the borrower meets the Fannie Mae guidelines for getting a mortgage after foreclosure, deed-in-lieu or short-sale. Underwriters can now review documents provided by the borrowers to ascertain the qualification.